Garfinckel Tells of Merger Bid

By Jerry KnightBy Jerry KnightJanuary 4, 1979

The purchase of a major interest in Garfinckel, Brooks Brothers, Miller & Rhoades by Gamble-Skogmo Inc. prevented Garfinckel from merging with another firm, court documents filed in a lawsuit between the two companies revealed yesterday.

Gamble's, a Minneapolis-based retailer, last summer bought about 20 percent of the stock of the Washington-based Garfinckel store group.

Gamble's purchases "resulted in the termination of negotiations for a proposed business combination between Garfinckel and another company," Garfinckel attorneys said in documents filed in U.S. District Court in Delaware.

The documents don't reveal what other firm Garfinckel was seeking to acquire, but says the combination "would have been benefical to Garfinckel" and its shareholders.

Frustration of its plans to make a third acquisition is one of everal new issues raised by Garfinckel in an amended complaint filed in a lawsuit that seeks to force Gamble's to dispose of its Garfinckel stock.

The new complaint reveals the Gamble-Garfinckel fight got its start when Gamble's came to Garfinckel with a plan to prevent both compaines from being taken over by someone else.

Gamble's proposed a "mutual protection pace" in which the two firms would buy 20 percent of each other's stock which, the lawsuit says, would "supposedly insulate" each of them against an unwanted takeover attempt.

Garfinckel's rejected that plan because of "Gamble" poor record and reputation" the lawsuit says, noting that Gamble-Skogmo profits had fallen for two years in a row and the company was involved in several problems with state and federal authorities.

The lawsuit charges that Gamble's misled shareholders and violated Securities and Exchange Commission laws by failing to disclose several aspects of its business:

"The full facts respecting unlawful kickbacks and rebates made by Gamble" which resulted in a consent order settlement with the SEC and the Federal Maritime Commission.

"Gamble's practice of using its insurance subsidiary, Gamble Alden Life Insurance Co., to benefit Gamble to the detriment of the policy holders.

"The fact that officers and directors of Gamble are defendants" in a Minnesota lawsuit accusing them of unlawful actions in purchasing the company's stock.

"The usurious practices of Alden's" a Gamble mail-order subsidiary, which the lawsuit says has been charged by state consumer protection agencies and the Federal Trade Commission with violating credit laws.

According to the amended complaint, after Garfinckel's rejected Gamble's mutual aid plan, Gamble executives held secret negotiations with members of the Joseph R. Harris family, which owned about 10 percent of the stock of Garfinckel's. The Harrises got their stock when Garfinckel Corp. purchased the Joseph R. Harris chain.

Those talks lead to Gamble's purchase of the Harris stock for $29 per share.Gmeble's later bought another 10 percent of Garfinckel's stock on the open market.

The lawsuit charges that Donald Harris violated his legal duites to Garfinckel's by negotiating the stock sale while he was a Garfinckel board member and the Harrises also violated SEC regulations by not making public plans to dispose of their stock.